Finance includes all actions taken to help plan for short and long-term financing of a Water Fund. This includes actions such as financial planning, financial analyses, fundraising, and developing the business case for a Water Fund.

Why is this necessary?

To develop and implement the Water Fund’s model for financial sustainability, which is capable of financing and ensuring the ongoing operation (including implementation of selected interventions and execution of other related activities) of the Water Fund.

Key Ideas

Guidance for Finance in this Toolbox occurs across the Water Funds Project Cycle. This overarching guidance can be generalized into the following categories: 

  1. Financial analysis

    A series of financial analyses must be undertaken to help scope the size of the problems that Water Fund will help address, the feasibility of the proposed interventions from a financial perspective, and cost-estimates for each phase of the project cycle
  2. Financial planning

    The cost-estimates derived from financial analyses will directly inform short and long-term planning for Water Fund development and operation. This planning includes full-cost accounting, such as the costs of operating the fund, implementing activities, engaging stakeholders, and so on.
  3. Fundraising

    The results of financial analyses and planning will support the identification of the different types of funding sources and mechanisms that should be pursued, a strategy for securing those funds, and connect funding sources to funding needs.
  4. Business Case

    A Water Fund business case analysis compares the benefits that a Water Fund generates for a particular Water Fund supporter, with their investments in the Fund. It's purpose is to assess for a specific investor – current or potential - whether their investment in the Water Fund is financially beneficial for them.
  5. Long-term Financial Mechanism

    Experience strongly argues for Water Funds to constitute a trust fund to mitigate cash flow risks, as well as to give certainty to water producers that the fund will be able to fulfill its multi-annual commitments and to strengthen its credibility by incorporating a transparent vehicle to administer resources. Even if the water fund becomes the recipient of constant flows from tariffs, rights or other sources, a trust fund may facilitate investment from other users. Although the trust fund or similar vehicle has benefits, there may be cases where local regulations make it difficult to create such a figure. For instance, most Water Funds in Brazil are built on a promise by the municipalities or basin councils to finance conservation actions. The governance structure is based on the decisions of the basin committees and resources come from appropriations of these committees.

within the 5 phases of the Water Fund Project Cycle:

Phase 1: Feasibility

The Feasibility Phase includes two 'checks' to test if a Water Fund is the right water security tool. First, a test of 'eligibility' is completed by quickly determining if there are water security challenges and a potential for a Water Fund to help. If yes, feasibility is then explored further by developing a deeper understanding of the situation and generally how a Water Fund could positively contribute to water security within the defined area.

Related Steps

Phase 2: Design

The Design Phase is undertaken to develop the best solutions for the identified water security issues and to choose the appropriate water fund configuration which accounts for key technical issues, financial considerations, governance dimensions and strives for maximum impact.

Related Steps

Phase 3: Creation

The Creation Phase is undertaken to formalize and publicly launch the water fund.

Phase 4: Operation

The Operation Phase is undertaken to establish stability by developing and implementing a comprehensive work plan, which guides systematic execution of activities, measurement and evaluation, and communication of progress towards the goals of the water fund. These activities should be continuously improved through adaptive management, refinements, and innovation.

Related Steps

Phase 5: Maturity

The Maturity Phase is a determination that assures the long-term viability of the water fund to create significant and lasting impact that positively contributes to water security.